If their compensation was tied to meeting those targets, they may have had an incentive to inflate their sales figures. For example, sales personnel at a given client may have struggled to meet their targets. The economic impact of COVID-19 may have created incentives and opportunities to record fictitious revenue. Examples of risks of fraudulent financial reporting misstatements that may be heightened in the current environment include: The two types of fraud that auditors are primarily concerned with are fraudulent financial reporting and misappropriation of assets.įraudulent financial reporting is fraud that involves intentional misstatements, including omissions of amounts or disclosures in financial statements to deceive users of those statements. Auditors should conduct engagements with a mindset that acknowledges the possibility that a material misstatement due to fraud could be present. 08 also states that auditors are responsible for maintaining professional skepticism throughout the engagement and recognizing that audit procedures effective for detecting errors may not be effective in detecting fraud. 05 of AU-C Section 240, Consideration of Fraud in a Financial Statement Audit. While adaptability is necessary for all in the current environment, auditors remain responsible for obtaining reasonable assurance that their client’s financial statements are free of material misstatement due to error or fraud under paragraph. With all of these factors present, the risk of fraud is substantially heightened. As many businesses shifted to remote operations, the risk of fraud may have increased.įor purposes of a financial statement audit, fraud is an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception that results in a misstatement in the financial statements.Ĭonsidering the fraud risk triangle, the current environment provides individuals the incentive or pressure to perpetrate a fraud, opportunity to commit fraud, and rationalization to justify a fraudulent action. All entities have been affected by the pandemic in some way, whether it’s changes in internal control caused by remote-working conditions or a decline in operations at the peak of the outbreak. The key to managing this uncertainty is adaptability. The coronavirus pandemic has taught us all to be on high alert during a time of uncertainty.
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